Is Cirrus Logic Destined to Fail?

Cirrus Logic (CRUS) announced fourth quarter ended March 26, 2016 total revenue of $232 million, down 33 percent sequentially from $348 million in third quarter of 2015 and down 9 percent year-over-year from $255 million in fourth quarter of 2015. Going forward, the company estimates first quarter of fiscal year 2017 total revenue to be in the range of $220 million to $250 million.

Cirrus Logic declared fourth quarter of 2016 non-GAAP net income of $24.9 million or $0.38 per diluted share, down 54 percent sequentially from $54.1 million or $0.82 per diluted share in third quarter of 2016 and down 43 percent year-over-year from $43.5 million or $0.66 per diluted share in fourth quarter of 2015.
Moving ahead, Cirrus projects first quarter of fiscal year 2017 GAAP gross margin to be in the range of 47% to 49%.

The key integrated circuits manufacturing company reported continued sequential and year-over-year decline in both its top and bottom lines primarily driven by near-term weakness of portable audio business segment and poor demand for smartphones during the quarter.

A closer look  

The current quarter and successive quarter’s projected quarterly results illustrate consistently declining audio codec sales and the weakening smartphone demand in the near-term which is mainly due to strong competition in the segment and thus, hurting the company’s key margins.

The planned research and development investments are driving sustainable long-term top line growth for the company with its business model needing significant investments in R&D growth activities for designing innovative products. Cirrus Logic has illustrated notable top line growth at a 5-year CAGR of about 26% with robust innovative products pipeline and solid growth efforts estimated to drive sustainable long-term company growth. The non-GAAP operating margin has fallen sequentially to 15% in fourth quarter of 2016 from 23% in third quarter of fiscal year 2016 and year-over-year decline from 18% operating margin in fourth quarter of 2015, primarily driven by enhanced expenditures and declining quarterly sales.

Therefore, Cirrus Logic needs to devise new growth strategies to successfully counter the growing competition in audio drivers and related codecs operating segment otherwise, the company is bound to continue to witness declining margins in the near-term and over the longer term.

Investing in the right areas   

Cirrus Logic is impressively expanding its market position by uniquely growing the served accessible market chance at a CAGR of 29% with a solid portfolio of advanced products addressing the global market demand. The company has developed superior scalable platforms having attractive sets of software and hardware solutions targeted at mid-tier and flagship devices. Further, Cirrus Logic is notably investing in attractive ventures that include voice biometrics and digital headsets in addition to developing its portfolio of advanced smart codecs, boosted amplifiers and related software capabilities.

Going forward, Cirrus Logic is consistently expanding year-over-year R&D investment capabilities which is driving sustainable long-term company growth. These key investments are primarily supported by robust cash generation capabilities of the company, generating $792.6 million of operating cash flows and $594 million of free cash flows while returning 48% of free cash flow to shareholders through strategic share buybacks.

The ongoing long-term growth investments being strategically supported by impressive cash flow generation capabilities and cost saving efforts of the company is estimated to provide an industry-leading position to Cirrus Logic in terms of growth and offering sustainable shareholder returns.


Overall, the investors are advised to “Hold” their position in Cirrus Logic Inc. considering the company’s significant long-term growth prospects with PEG ratio of 1.07 and somewhat better than the industry’s growth average of 0.86. The profit margin of 10.57% seems impressive. Moreover, Cirrus has a solid financial position with notable total cash of $229.38 million and smaller total debt position of $160.44 million only, encouraging the company to make future growth investments while delivering attractive shareholder returns.
Published on Jun 17, 2016
By Subhen Mittra

Copyrighted 2020. Content published with author's permission.

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